Building on 2024
Building on 2024
2024 was a year of growth, hopefully personally as well as with your investment accounts. We take great pride in serving you and we value your trust. We understand that your investment statements are not sheets of paper with pie charts and numbers, they are peace of mind, the promise of education and living life on your terms. We are constantly looking for new ways to provide value to you.
In May of 2024 we hired Jarrod Lifer in our Ashland office to add additional financial advisors to serve you. Macy Vogel obtained her Life Insurance license. Derek Ballinger passed level one of the CFA examinations, which is the most challenging designation in the financial industry. Money Guide Pro, one of the most popular financial planning software packages, is available to all clients without additional charge, as is Holistaplan, our tax planning software. Carly Snyder, our marketing professional, is available for all businesses looking to take their revenue to a new level. Julie Maglott tailors insurance coverage to protect our client’s assets and earning power. We are looking forward to watching your success grow and hope that you take advantage of many of the services our firm offers. Best wishes to you and your family.
Free Return Review Through Holistaplan Software
Can you make a Roth IRA contribution? Should you be making a Roth conversion? Can a Health Savings Account enhance your deductibility? Many of our clients have taken advantage of our free tax return review to enhance tax efficiency for 2025. Our firm uses software through Holistaplan to review the previous year personal tax return (form 1040). The software will identify credits, deductions, and retirement plan contribution options that are available to you. We also analyze the source of dividends to make sure income generated from investments doesn’t negatively affect the investor’s tax burden.
"Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes." -Learned Hand, U.S. District Court Judge
Use of Buffered ETFs Grow in 24 as Bond Funds Struggle
Buffered ETFs or Defined Outcome ETFs are a relatively recent product but have some interesting characteristics for return and can be a useful risk management tool in portfolio’s that don't want to experience the full drawdown of equity indices like the S&P 500 or the NASDAQ 100. By giving up some of the upside, you can protect the downside to a meaningful degree. The bear market in bonds has sparked demand from investors to look for other ways to generate a return that is less volatile than the stock market. We believe some exposure to Buffered ETFs can supplement that stability in portfolios that was traditionally reserved for bonds. We use Innovator ETFs to get this exposure, and they have performed as well as we have expected them to since we added them to our risk-based models.
The very simple explanation on how they work is you can effectively sell the potential upside gain using options. With the money you receive from selling the upside, you buy downside protection. It's more expensive to buy 100% protection, so the more protection you buy, the less upside you get. Conversely, if you buy less protection you get to keep more of the upside. Buffered ETFs are also tax efficient. If you own a fixed income bond ETF, you owe taxes on the income generated by the holdings as well as capital gains on the holdings inside of the ETF as well as if you sell the ETF for a gain. With our selected Buffered ETFs, the issuer has been effective at not creating capital gains distributions to shareholders, and there is no income generated so you only owe taxes when you go to sell the ETF at a gain. To add a clarifying point: The issuer has been effective at not creating capital gains distributions to shareholders to date, but that isn't to say it could never happen. Let's look at a more concrete example. We have added Buffered ETF exposure to all of our risk based models through Innovator ETF’s Equity Defined Protection 1 Year July, ticker symbol $ZJUL. This was issued in July 2024, it has a 100% buffer so the downside is limited to the level of the S&P 500 in July of 2024 plus the expense ratio of 0.79%. The upside is capped to 9.5% in a 12 month period. Once that 12 month period is up, the investor will receive a new 100% buffer at the level of the S&P 500 in July 2025, the upside cap will be determined at that point in time based on the options market and what protection costs/upside sells for in June/July of 2025. These can be built with other indices or ETFs like the Russell 2000 ETF, the NASDAQ 100 ETF, the Vanguard Total Bond Market ETF. All of which have different barrier/return characteristics based on the options markets for those ETFs. Risks: 1) You could receive a negative return if the ETF returns 0% and the expense ratio will still be charged 2) If you buy the ETF after the initial issue, you are exposed to more downside. But the lower bound will be the based on the index level of the issue date 3) Reinvestment risk: There is potential that the upside cap will be less than 9.5% next year 4) Opportunity Costs: If the market does a theoretical 50% in a year, you would receive 9.5% in a buffered ETF minus the expense ratio. 5) Correlation Risk: These are directly correlated to the market up to the point where the upside/downside barrier is breached then they become less and less correlated 6) No income generated: While some buffered ETFs provide income, we chose to buy ZJUL which does not provide income but is better in terms of the tax consequences because the investor will not owe taxes until these ETFs are sold. Assuming the track record of the issuer holds and they don't create a capital gains distribution to shareholders. If you want to learn more about how they actually work under the hood, you can read a blog we recently posted here.
-Article credit Derek Ballinger, CAG Managing Member
Crosby Advisory Group, LLC is a registered investment advisor providing financial planning, insurance and business growth strategies. This newsletter is for information purposes and does not represent individual investment advice. Not all investments are suitable for all people. You should carefully consider all risks and fees before making an investment.
